May 2012 – PBS expenditure now falling in real terms

Figure 1 – Recent PBS data shows no growth in real terms

Growth in government expenditure on the PBS in the 12 months to 31 March 2012 was just 0.8%. After adjusting for inflation, currently at 1.6%, this represents a decline of 0.8% in real terms. This is well below the Government’s own target of two per cent growth in real terms. The decline in expenditure is likely to continue, as the largest single set of price reductions in the history of the PBS took effect on 1 April 2012 and the impact of these reductions has not yet shown in the official figures. The PBS reforms are working – the Government is on track to save $1.9 billion dollars over the forward estimates and the current lack of (real) growth reinforces the industry’s long-held position that PBS is well under control.

Figure 2 – PBS growth is declining decade on decade

The ten year average growth in PBS in the last decade (2000-2010) was one of the lowest since the 1980’s. The Department of Health and Ageing Annual Report 2010-11 reported that in the financial year to 30 June 2011, PBS expenditure grew by 5.7%. The current growth rate (2.4%) for calendar year 2011 using Medicare Australia data reaffirms that the long term downward trend is continuing.

Figure 3 – PBS as a % of GDP remains stable

Over the last decade, PBS expenditure as a proportion of GDP has remained steady at between 0.6% and 0.65%. This percentage is now on a downward trend, as PBS expenditure is now decreasing (in real terms) while the economy continues to grow.

Figure 4 – PBS as a proportion of GDP – Actual vs Projected

Australia’s 2010 Intergenerational Report predicted that expenditure on the PBS will remain steady at 0.7% of GDP through to 2020. Already, actual expenditure in 2009-10 and 2010-11 was below the 0.7% of GDP forecasted in Intergenerational Report 2010.